Are Retirement Accounts Part of An Estate?

At the Federal level, the answer is “yes.”  There is no way to keep IRA or retirement plan assets out of your estate short of taking the assets out of the IRA or retirement plan and paying taxes on the distribution.  

Thinking about IRAs/retirement plan accounts and estate issues, keep in mind IRA and retirement plan assets are not like other assets in your estate. For example:

  1. According to Tim Parker at Investopedia, unless payable to an estate, IRAs and retirement plan accounts do not have to pass through the probate process like other assets as part of a will.   If you designate a beneficiary on an IRA or retirement plan account, that person will receive the assets directly regardless of what your will may say.  (For this reason, please consider adding beneficiary designations to any retirement accounts, and review your beneficiary designation regularly to make sure they’re up to date!)
  2. To your beneficiaries, IRA and retirement account distributions are taxed as ordinary income and not as capital gains.
  3. Unlike other assets, assets in an IRA or retirement plan account are not “stepped-up” in basis when they pass from the owner to the beneficiary.

State laws vary and I suggest you consult with a qualified estate attorney to find out how your state’s estate tax rules affect your IRA and retirement plan accounts.

Kiplinger Magazine has many good articles on personal finance and retirement. In May 2021, they ran a good article on Planning for Retirement Assets in Your Estate Plan. I suggest you read it to learn more about this topic.

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